HR Policies & Employment Legislation
Sample Policies on Common HR Topics
Contract workers and employment status
Nonprofit organizations often use contract workers to augment their human resources for project requirements and to obtain specialized services as needed. Contract workers can help to meet work needs of the organization without increasing staff numbers and incurring employment expenses such as Employment Insurance, Canada Pension Plan, vacation pay, and other employee benefits. However there are significant legal ramifications to hiring contract workers as self-employed service providers when in reality they are employees.
Organizations should establish a clear policy on the use of contract workers, identifying when to hire a contract worker as an employee and when to hire a contract worker as a self-employed service provider. In general, a good guide is hire a contract worker as a contract employee when the organization requires regular full- or part-time work to be done over a significant period of time; and hire a contract worker as a self-employed service provider when the organization needs advice, specialized services or irregular short-term work done.
When are contract workers employees?
The first step in determining whether or not a contract worker is an employee is reviewing the definitions of employee, employer and the employer-employee relationship:
Employee - An individual who serves an employer.
Employer - An organization or individual who is required to pay a salary or other remuneration for services rendered by an employee.
Employer-employee relationship - A verbal or written agreement in which an employee agrees to work on a full-time or part-time basis for an employer for a specified or indeterminate period of time, in return for salary or wages. The employer has the right to decide where, when, and how the work will be done. In this type of relationship, a contract of services exists.
Other indicators of an employer-employee relationship:
- A contract is lengthy or the same individual is hired on several back-to-back contracts
- The individual is a recently laid-off or retired employee of the organization
- The individual is performing the same or similar work to employees on staff
- The individual derives all his or her work income from the one organization
- The individual works regular hours on the employer's premise
- The individual uses equipment (i.e. computer) owned by the organization in order to perform work on behalf of the organization
- The individual presents himself or herself as a member of the organization (i.e. has organization business cards)
Indicators of a self-employed contract worker:
- Has a number of clients
- Has a GST number
- Determines his or her own work schedule, works out of his or her own office location
- Acts on his or her own behalf, representing himself or herself as a separate entity from the organization (even when attending external meetings or conducting marketing or promotional activities for the organization)
- Generates a business loss or profit based on the performance of the work completed for their client organizations
These indicators provide guidance on determining the employment status of contract workers in your organization. However, it is recommended that you review employment definitions and regulations as established by the Canada Revenue Agency and your provincial Employment Standards, when developing contracts (setting out the terms and conditions) for contract workers. Having a lawyer review your contracts and contract worker policy is an additional assurance that you are operating within the law.
Contract workers and legal requirements
If a contract worker is a self-employed service provider then the organization is legally bound by the terms and conditions of the signed contract. Most federal or provincial labour laws do not protect the self-employed service provider.
If a contract worker is an employee, the organization must: pay the employer premiums and deduct employee contributions for government-sponsored benefits (Canada Pension Plan, Employment Insurance, and Workers Compensation); collect income tax and other taxes; and provide benefits mandated by provincial Employment Standards (refer also to the Employee Benefits policy guideline). The contract worker who is deemed an employee is protected by federal and provincial labour laws and, in a unionized organization, by the collective agreement.
If the Canada Revenue Agency determines that a contract worker is/was in fact an employee, and the organization has been operating as if the contract worker is/was a self-employed service provider, the organization may be required to pay all back taxes, EI and CPP premiums (including the portion normally contributed by the employee) and any interest owed; and may be fined.
If the provincial ministry of labour determines that a contract worker is/was in fact an employee, then the organization will be required to uphold all applicable labour law with respect to the contract worker, including paying all appropriate benefits in addition to the agreed upon hourly rate or salary; and may be liable for termination and wrongful dismissal payments.
Terms of the contract
Organizations should establish clear terms and conditions for each contract worker, both for the contract worker who is an employee and for the self-employed service provider.
The terms and conditions should establish up front the employment relationships (whether the contract worker is an employee or self-employed service provider).
If the contract worker is deemed an employee, the contract should outline:
- The job title and basic job requirements the individual is being hired to carry out
- The beginning and end date of employment
- The hours and location of work
- The rate of pay and pay periods
- Deductions that will apply (i.e. EI, CPP, income tax)
- Benefits that will be provided
If the contract worker is deemed to be self-employed, the contract should outline:
- The nature of the work to be completed (avoiding any implication of control over how the work will be accomplished or the hours and location of work)
- That the relationship is not employer-employee
- That the contract worker is responsible for all source deductions such as CPP, EI, income tax
- The fees and payment schedule, including GST (include the individual's GST number in the contract)
- The terms for terminating the contract (notice period for termination before completion of the contract, reasons required/not required for terminating the contract prior to completion; payment obligations when terminating before completion of the contract)
Again, it is advisable to have a lawyer review your contracts to ensure you are operating within the law and that you have protected the organization against legal action.
Sample Contract Agreement (PDF - 67KB)
Employment Classifications - National Organization (PDF - 39KB)
Employment Categories - Voluntary Sector Association (PDF - 38KB)